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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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A question and my answer

Posted by Muthu on February 6, 2015

As you are aware, I’ve been contributing to ‘Nanyam Vikatan’ Q&A section for the last 8 years.

In the latest issue, one gentleman asked me the below question.

“I’m 48 years old. I want to start saving for my retirement which is another 10 years away. I can save Rs.10,000 a month for next 10 years and I need a corpus of Rs.75 lakhs at the time of retirement. Please guide me as to how I can reach this goal of Rs.75 lakhs.”

My answer to him was as follows:

“To build wealth, you need to invest in equity. The best way to do is through SIPs in diversified equity funds. If you do a SIP of 10K per month for next 120 months (10 years), at 18% annualised return, you would be able to accumulate a corpus of only Rs.33 lakhsIf you want Rs.75 lakhs in 10 years, you need to save Rs.22,300 every month.

If you can only save 10K per month, then you need to invest for 14 years to get a corpus of Rs.75 lakhs.

So you need to either increase the SIP amount or the investment tenure to achieve the retirement goal of Rs.75 lakhs.”

If you notice, by extending the investment tenure by 4 years, he is able to get 2.3 times more than what he would have accumulated in 10 years and achieve his goal. Whereas if he is particular that the corpus has to be achieved in 10 years, he needs to save 120% more than what he is capable of saving now.

In this case, he should find a way to work for 4 years after his retirement from the current job. Otherwise, even by his own calculations, it would be difficult to lead his post retirement life.

If he had started early, say even at the age of 38, the same 10K invested per month would give him Rs.2.34 crores at the retirement age. He can lead a post retirement life beyond his expectation.

People want substitute for time in investment. Compounding needs time to work and it is always back loaded (i.e.) major portion of wealth gets build up only in the later part of investing tenure.

Searching for higher returns in order to reduce the time required to build wealth may lead to taking unnecessary risks.

If someone is 30 years now and wants to retire at 60 with Rs.100 crores, at 18% annualised return, all he has to do is to save 70K per month.

If you think, Rs.100 crore would be small in 30 years, you are wrong. At 6% inflation, it is worth Rs.17 crores today. In other words, what Rs.17 crores can buy today, Rs.100 crores can buy the same thing 30 years down the line.

Time can compound even small amounts into big sum over a long period of time. If you are saving big amount, then imagine how much it would be worth if only you can give not less than 10 to 20 years for investment to work.

18 Responses to “A question and my answer”

  1. Srinivas said

    Thanks for the article. I have a follow-up unrelated questions. Recently, i saw you had a post on twitter about Birla Sun life Tax Saver fund being up 108 times in 18 years. Are there any other funds that have given similar returns over a similar time frame or is this a one off?
    Can you do an article on such funds if there are any? Also, looking through the rating for the above fund on value research and morning star, i see it only has been rated 3-star. Your thoughts if any on the same…

    • Muthu said

      I don’t go only by rating. Look for funds which are more than 15 years old. You’ll find many multi-baggers.

      • Srinivas said

        The below is the list of funds which have greater than 15 year age according to the fundoo and are equity oriented.The highest among the below was Franklin India Tax shield which was a 42 bagger.
        In short, the 108 times given by the birla tax saver was a one off. Are you aware of anything else that was a 100 bagger? or a 80 bagger atleast?
        I am trying to see if the 108 bagger was a one off and an aberration or a norm.

        Birla Sun Life Buy India Fund-G Ajay Garg Diversified
        Birla Sun Life Equity Fund-G Anil Shah LargeCap
        Birla Sun Life India Opportunities Fund-G Naysar Shah Diversified
        DSP Black Rock Opportunities Fund-G Apoorva Shah Diversified
        Escorts Tax-G Archit Singhal ELSS
        Franklin India Bluechip Fund-G Anand Radhakrishnan/Anand Vasudevan LargeCap
        Franklin India Opportunities Fund-G R. Janakiraman/Anil Prabhudas Diversified
        Franklin India Prima Fund-G R. Janakiraman/Roshi Jain Mid/SmallCap
        Franklin India Prima Plus Fund-G Anand Radhakrishnan/R. Janakiraman Diversified
        Franklin India Taxshield-G Anand Radhakrishnan/Anil Prabhudas ELSS
        HDFC Capital Builder Fund-G Chirag Setalvad/Miten Lathia LargeCap
        HDFC Equity Fund-G Prashant Jain/Rakesh Vyas Diversified
        HDFC Growth Fund-G Srinivas Rao Ravuri/Rakesh Vyas LargeCap
        HDFC Large Cap Fund-G Vinay R. Kulkarni/Rakesh Vyas LargeCap
        HDFC Long Term Adv Fund-G Chirag Setalvad/Rakesh Vyas ELSS
        HDFC TaxSaver-G Vinay R. Kulkarni/Rakesh Vyas ELSS
        HDFC Top 200 Fund-G Prashant Jain/Rakesh Vyas LargeCap
        ICICI Prudential Tax Plan-G Chintan Haria/Shalya Shah ELSS
        ICICI Prudential Top 100 Fund-G Sankaran Naren/Mittul Kalawadia LargeCap
        ICICI Prudential Top 200 Fund-G Yogesh Bhatt/Abhishek Pathak Diversified
        JM Basic Fund-G Asit Bhandarkar Diversified
        JM Equity Fund-G Sanjay Kumar Chhabaria/Chaitanya Choksi LargeCap
        LIC Nomura MF Equity Fund-G Nobutaka Kitajima LargeCap
        LIC Nomura MF Growth Fund-G Nobutaka Kitajima Diversified
        LIC Nomura MF Tax Plan-G Nobutaka Kitajima ELSS
        Principal Growth Fund-G P.V.K Mohan Diversified
        Reliance Growth Fund-G Sunil Singhania Mid/SmallCap
        Reliance Vision Fund-G Ashwani Kumar LargeCap
        Sahara Tax Gain Fund-G A. N. Sridhar ELSS
        Sundaram Growth Fund-G J. Venkatesan LargeCap
        Tata Equity Opportunities Fund-G Pradeep Gokhale/Rupesh Patel Diversified
        Tata Ethical Fund-G Pradeep Gokhale Diversified
        Tata Mid Cap Growth Fund-G Atul Bhole Mid/SmallCap
        Tata Pure Equity Fund-G Pradeep Gokhale/Nainesh Rajani LargeCap
        Taurus Bonanza Fund-G Sadanand Shetty LargeCap
        Taurus Discovery Fund-G Sadanand Shetty Mid/SmallCap
        Taurus Star Share Fund-G Sadanand Shetty Diversified
        Taurus Tax Shield Fund-G Sadanand Shetty ELSS

      • Muthu said

        Please check Valueresearch for each of these funds. For example, Reliance Growth, HDFC Tax Saver & Franklin India Bluechip have all given superb returns.

  2. Arun said


    I used this link – http://www.moneycontrol.com/personal-finance/tools/magic-of-compounding-tool.html

    Moneycontrol’s compounding calculator. Here, for 30 years, at 18% cagr, 70,000 per month gives 71 crores. Am i missing something here ? Your guidance please.


  3. aarvi1948 said

    In the calculations for the returns on the SIP you seem to have assumed a return of 18% compounded monthly. to get the monlty SIP of 70K for 30 years to get the target of 100 Crore. But if it is just 18% p a then the effective monthly rate would by 16.66 monthly compounded or 1.388% monlhly compounded. In that situation, the SIP would be 96K instead of 70K. Please could you confirm.

  4. subra manian said

    Dear Muthu,With your increased frquency of posts you are really rocking.Kindly continue your good work.With best wishes,G.SubramanianSent from Yahoo Ma

  5. Noushad said

    Sir I am 28 year old .I can save month 35k per month.i want to start sip investment for 12 years.what is my profit after 12 year.is it guaranteed.

  6. Noushad said

    I can invest monthly 35k

  7. dinesh said

    how much i have to invest per month to reach 2 crore target in 10 years?what are the best mutual funds i can invest in?

  8. amrit said

    Sir .. i m a 28 year old guy.recently i got enlightend on sense of saving money…. i m not aware of any of these things discussed above beside of few… like SIP… sir im really very eager to know all about it …like what it is …minimal amount….minimal time …. growth percentage….etc… with example….do me the needful ….and lastly the best brand to go with….

  9. Karthik MG said

    Sir, Thanks for the enlightening post.
    As you have mentioned 18% returns for 30 years in the example, is it even possible to attain such results through mutual funds in India? I am asking this question because only Warren Buffett has such a track record of scoring 18% returns consistently. Kindly provide your views.

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